Will Bitcoin Crash Gold?

Summary

Investor interest in precious metals has declined over the last 6 months.ecially amid government pressures in East Asia.

  • Chinese Bitcoin use is skyrocketing.
  • We are experiencing a demographic shift away from gold and into Bitcoin as the primary alternative investment.
  • Gold has been in severe decline throughout the fourth quarter of 2016. This correction is predicated upon dollar strength, higher bond yields, and the opportunity cost of a rising equity market.

However, there is a factor in the gold decline that is not getting enough attention: Bitcoin. The governments of China and India have restricted their citizen’s investment in gold to such a degree that people are abandoning it and turning to cryptocurrency as the primary alternative investment.

Background

Ever since the election of Donald Trump, the Chinese yuan has been in a nosedive, and the nation is facing severe capital flight as investors convert their money into dollars, euros, and gold. On top of this, since gold is traded in dollars, imports of the metal deplete China’s dollar reserves, further weakening the yuan.

In response to these challenges, the Chinese government has restricted importation of gold. But the fundamental challenges faced by the Chinese economy have not been addressed, leaving investors in the nation skittish about holding paper money and unable to buy as much gold as they would like.

Across the globe, Bitcoin use is surging while investor interest in precious metals declines.

Bitcoin

The evidence suggests Bitcoin is replacing gold as the haven currency for the new generation of investors in China and East Asia in general. The cryptocurrency is much more liquid than gold, and it is has the added benefit of facilitating anonymity. In a place like China, where government censorship is prevalent, and professional hacking and scams are commonplace; anonymity is important.